With the Oct. 31st "Brexit" deadline in sight, UK Prime Minister Boris
Johnson announced that he has secured a draft deal with the EU, following
intense negotiations between both sides. While we view the news as positive for
the economic growth outlook, the PM is far from being out of the woods as he
faces the hurdle of persuading MPs to support the draft. Compared to Theresa
May's deal rejected earlier in the year, Northern Ireland is now expected to be
part of UK's customs territory, rather than the European customs region. For
us, even as the parliamentary arithmetic looks unnerving for the PM, there is a
slight chance of securing a majority vote, given the fact that rebellion among
the conservative party is expected to be subdued. While markets appear to have
cheered progress made thus far, we believe doubt about growth prospects will
resurface should parliament fail to support the deal.

Sustaining the disappointing trend since the second quarter of 2018,
China's economic growth deteriorated further, as GDP grew by 6.0% y/y, the
lowest reading in 27 years. Clearly, a year-long trade dispute with the US has
significantly weighed on the external sector, and by extension, the overall
economy. Adding to this is still relatively tight credit conditions which
continue to hurt domestic demand. While the breakdown provided revealed that
factory output improved, slowing business investment owing to weak export
demand dragged economic growth in the period. For the next few quarters, growth
is expected to remain subdued barring a surprise Sino-US trade resolution. We
highlight slowing export demand as the major bane to long-term growth
prospects.

Global markets

The European Union (EU) backed a new Brexit deal with Britain, prompting
an uptick in the global equity markets. Adding to this is the impressive
earnings releases, with major companies reporting better-than-expected results.
However, gains were capped by disappointing economic data from China and the
US, with the former reporting its slowest economic growth in 27 years. Relative
to the prior week, the US markets (DJIA: +0.8%, S&P: +0.9%) were on track
to end the week in the green at the time writing. Elsewhere, despite clinching
a new "Brexit" deal which is set to be voted on by the UK MPs, European (FTSE:
-0.7%, Euro Stoxx: +0.6%) stocks were mixed. Even as the disappointing growth
outturn weighed on sentiments in China (CSI 300: -1.1%), Japan's market looked
set to outperform (Nikkei: +3.2%). Positive performance in India (+3.1%) and
Brazil (+1.1%) drove the gains in Emerging Markets (MSCI EM: +1.7%), while
losses in Nigeria (-0.4%) and Vietnam (-0.3%) weighed down Frontier Markets
(MSCI FM: -0.7%).

Nigeria

Economy

After three consecutive months of deceleration, headline inflation
widened by 22bps to 11.24% - the highest reading since May 2019. Amidst the
sustained border closure, food inflation for September rose by 34bps to 13.51%
y/y (August: 13.17% y/y), the second consecutive month of an uptick. After
10-consecutive months of descent, core inflation edged-up by 27bps to 8.94% y/y
in the period under review. This week, the federal government announced
complete closure of all land borders against earlier partial closure, thus, we
expect the food inflation to inch higher in October. Elsewhere, we see no major
pressure point in the core inflation. Overall, given the low base from the
corresponding period of the prior year, we expect headline inflation to sustain
its upward trajectory, expanding to 11.32% y/y in October.

Economic activities weakened in Q1-19, with the recently released GDP
(expenditure approach) data showing that the economy grew slower by +2.1% y/y
(+2.4% y/y in Q4-18). Dissecting the components, we note that household
consumption which constitutes 60% of the total GDP weakened by 890bps to 1.4%
y/y, the slowest since Q3 2018. Similarly, government expenditure collapsed to
a record low of 2.7% y/y. On the positive, faster growth was recorded in fixed
capital investment (+159bps to 13.8% y/y). We are less optimistic about growth
over the rest of 2019, as consumer spending is likely to remain weak; real wage
growth is likely to move further into negative territory in the absence of the
new minimum wage implementation and amidst high inflationary pressures.

Capital markets

Equities

Amidst continued investor apathy and a lack of positive catalysts, the
Nigerian equities market continued to plummet, with the All-Share Index declining
by 0.4% w/w to 26,448.62 points - a 52-week low. Consequently, the MTD
and YTD returns worsened to -4.3% and -15.9%, respectively. Analysing by
sectors, sustained selloffs across Tier I Banks dragged the Banking index to a
2.0% loss; the Industrial Goods (-0.3%) and Oil & Gas (-0.2%) indices also
recorded declines. Conversely, the Insurance (+2.4%) index resumed its
upward trend, following a break in its 3-week gaining streak in the previous
week, while the Consumer Goods (+0.1%) index followed suit, recording a
marginal gain.

In our view, the trend witnessed through the year is likely to persist
through the final quarter of the year, although we expect pockets of gains over
the final months of the year as fund and portfolio managers realign portfolios
prior to the start of 2020. Nonetheless, we note that valuations remain
attractive driven by price deterioration throughout the year. Hence, we advise
that long-term investors consider appropriately timed investments.

Money market

The overnight (OVN) rate undulated during the week, before settling
lower by 6.57 ppts at 5.86%. On the first trading day, the rate settled
4.36ppts higher at 16.8% as system liquidity thinned out. However, by the
second trading day, the rate moderated by 7.65ppts, before then further paring
by 12.00ppts on the following trading day to 4.8%, following CRR refunds to
banks by the CBN. On the penultimate trading of the week, the rate increased by
8.36ppts to 13.14%, despite inflows of NGN463.98 billion from OMO maturities,
as investors looked to re-invest in an OMO auction called by the CBN on the
same day.

In the coming week, OMO (NGN282.88 billion) and Treasury bond (NGN233.90
billion) maturities, as well as bond coupons (NGN48.74 billion) - 12.75
27-APR-2023 (NGN18.91 billion), 14.55 26-APR-2029 (NGN12.87 billion), and 14.80
26-APR-2049 (NGN16.97 billion) - are expected, and should keep the rate
moderated by the end of the week.

Treasury bills

Trading in the Treasury bills market was seemingly bullish as the
average yield across instruments pared by 17 bps to 12.4%, as investors took
positions in the market amidst relatively buoyant liquidity. Also, the CBN held
an OMO auction during the week, on the 17th of October for instruments worth
NGN430.00 billion - 91DTM (Offered: NGN30.00 billion; Allotted: NGN14.31
billion), 182DTM (Offered: NGN50.00 billion; Allotted: NGN36.29 billion) and
364DTM (Offered: NGN350.00 billion; Allotted: NGN370.00 billion), at respective
stop rates of 11.59% (previously 11.59% auction), 11.79% (previously 11.79%
auction) and 13.35% (previously 13.39%). Similar to the auction last week, the
level of bids on the long tenor instrument was significant, with total
subscriptions settling at NGN1.07 trillion.

During the week, the CBN gave banks a directive to cease sales to
clients with outstanding loans with any bank, as well as corporates which were
benefitting from CBN intervention funds. While we don't expect to see an
immediate impact in the market over the short-term as banks will need to work
out the methodology for identifying debtors across institutions, the long-term
implication should be weaker demand, which will keep yields elevated.

Bond

Similarly, trading in the Treasury bonds secondary market was bullish as
the average yields pared by 13bps to settle at 13.9%. There were yield declines
recorded across the market, save for on five instruments. The OCT-2019 (-62bps)
and FEB-2028 (-35bps) instruments recorded the largest declines in yields,
while the JUL-2021 bond recorded the largest increase (+4bps). Also, the DMO
will be holding a PMA Treasury bonds auction on Wednesday the 23rd of October
for three instruments - 12.75% FGN APR 2023, 14.55% FGN APR 2029, and 14.80%
FGN APR 2049 -, which will all be offered through re-openings.

We expect sell-offs in the secondary market, as investors look to take
positions in the PMA auction. However, yields should still close the week lower
as investors look to invest maturity proceeds and bond coupons expected during
the week.

Foreign exchange

Amidst weakened foreign inflows and increased dollar sales by the CBN,
Nigeria's FX reserves dipped by USD35.38 million WTD to USD41.04 billion (16
Oct 2019), the lowest level since 7th Feb 2018. The CBN sustained its
weekly FX intervention, selling USD210.00 million across the different segments
of the FX market - USD100.00 million to the Wholesale segment, USD55.00 million
to the SMEs segment, and USD55.00 million to the Invisibles segment. Despite
the intervention, the naira depreciated by 0.02% w/w to NGN362.21/USD at the
I&E window but closed flat at NGN360.00/USD at the parallel market.
Elsewhere, total turnover at the I&E window declined by 19.84% WTD to USD744.43
million, with trades executed within the NGN357.00-364.20/USD band. In the
Forwards market, the naira weakened across all contracts, save for the 6-month
(+0.1% to 382.50/USD) contract, with the 1-month (-0.1% to NGN365.40
/USD), 3-month (-0.1% to NGN372.06 /USD), and 1-year (-0.4% to NGN408.79/USD)
contract declining.

Whilst we acknowledge the continuous depletion of reserves amidst
sell-offs by off-shore investors, our estimates suggest that there will be no
need for a devaluation of the naira in 2019, as we believe the CBN has more
than enough ammunition to sustain its naira defense. Hence, we expect the naira
to remain resilient in the short to medium-term.

The Centre for Values in Leadershipwill this day
commence its Pre-Retirement and Livelihood Programme themed "Managing a
New Beginning" in Victoria Island, Lagos, while the maiden Wood Expo holds on the same day in Abuja with the theme: "Forest
to Wealth".

The Convention on Business Integrity in collaboration with the Maritime
Anti-Corruption Network (MACN) will on this day hold a roundtable session at
the Sandralia Hotel (Augusto Hall), 1, Solomon Lar Way, Jabi, Abuja, with the
theme "Towards
Standard Operating Procedures That Work in Nigeria's Sea Ports &
Terminals."

GTI Finance Academy will this day commence its "Financial Modelling for Investment Decision Making" Training at the GTI House, 4 Tinubu Street, Central Business District,
Marina Lagos, while the 4th Africa Oil & Gas Talent Summit holds on the same day at Four
Points by Sheraton, Victoria Island, Lagos.

The 9th PDF II Non-oil Exporters dialogue and
capacity building event kicks starts on this day at the Radisson Blu, Ikeja
Lagos, with the theme "Access to Markets for Non-oil Exports" while the ISN 2019 gathering with the
theme 'Building Sustainable Hubs to Support Nigerian Entrepreneurs' holds at the Civic Center, Victoria Island,
Lagos.

Guinness Nigeria
Plc will hold its Annual General Meeting (AGM) on this day at
the Congress Hall, Transcorp Hilton, FCT, Abuja.

Edu360 powered byUnion Bank with the theme "Education Beyond Walls" will commence this day at the Union Bank
Sports Club, Bode Thomas Street, Surulere, Lagos, just as the Afriexporter International Expo 2019 holds on
the same day at the Oriental Hotel, Lagos with the theme "Regional Cross Border Trade: Gateway
to International Exports"

Cutix Plc will hold its Annual General
Meeting (AGM) on this day at Anaedo Social Club Hall, 20 Ezenwegbu Road, Otolo
Nnewi, Anambra State, same day as the Linkage Assurance
Plc, Extraordinary Meeting set to hold at the Imperial Hall, Lekki
Coliseum, Plot 14, Providence Street, off Admiralty Way, Lekki Phase 1, Lagos.

The Nigeria Sales
Conference powered by the Selling Champion Consulting Ltd will hold on this day in
Kobb Civic Centre, Polo Park, Enugu.

The Initiates PlcAGM will hold on this day at the
Best Premier Hotel & Resort, Aba Expressway, km 16, Opposite Intels, Port
Harcourt, Rivers State, same day as the Skye Shelter Fund AGM at the Ivory Victoria Island
226A, Muri Okunola Street, Victoria Island, Lagos, as well as the PZ Cussons Nigeria
Plc, at the Al-Murian Hall, Britol Palace Hotel, Kano States.

Saturday, October 26, 2019

The Teacher's Symposium
2019 powered by Olashore International School will hold on this day at Plot
163, Cadastral Zone BII, Kaura District, Abuja; while the African Wellness
Summit powered by Infinity Wealth Limited holds on the same day in Abuja.

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